Until adcocks board decides it wants to be

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“Until Adcock's board decides it wants to be transparent with the people who actually own their company, the terms of these offers are just conjecture. Until then, who can say if CFR's offer is really first prize, or whether Adcock's board is just protecting an underperforming management team, rather than looking out for shareholders”.
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Payment Mechanisms - Different payment options are appropriate for different M&A transactions/deals - Consider : A + B = C (merger transaction) There are two possible payment options: 1.) A could issue more of its own shares and exchange these for all of B ’s shares, company B then dissolves A ’s ability to raise sufficient equity is dependent on their financial performance and the state of equity markets. 2.) C could issue new shares and exchange these for shares in A and B and so A and B dissolve - Several South African companies moved their primary listings to London to access a larger group of investors - Mergers – generally financed through share issues - Acquisitions - generally financed with cash transactions - In some cases the acquiring company may take over the debt of the target company - Choice of payment mechanism is dependent on many factors largely influenced by tax implications Cash Transactions Motivations for Cash Transactions - Following factors provide the greatest motivation for cash transactions: Mostly used in acquisitions Also predominantly used for joint ventures and licensing contributions The nature of the deal determines the manner of financing Preferred payment method when equity markets are under pressure If unfavourable financial markets – shares are undervalued, don’t want to issue more shares Can be in a situation however where the capital can only be obtained at high interest rates therefore forced to engage in share issuing cheaper option. The acquiring firms financial position Larger the surplus of cash reserves, the more likely company will become a target Choose a cash transaction to reduce the cash reserves and make company less attractive Large cash surpluses – often experience agency problems where acquisitions are made to increase the size of the firm and don’t add any value Larger cash reserves = more likely to structure cash transactions - Often occur at a lower premium than share transactions lower risk associated (fixed price ) - Target company shareholders aren’t able to share in future increases in value of combined company if a cash transaction is used Sources of Cash - Firstly must determine if there are sufficient internal cash resources to finance the transaction If large surpluses – must identify which investment opportunities are feasible to invest in Investment could be taking over another firm ensure maximise shareholder wealth - If not sufficient internal finances – raise debt capital Utilise debt before equity because lower costs involved New equity issue = negative signals to the investors rather use debt capital first 2 | P a g e
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  • Fall '19
  • cash transactions

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